James E Burton took over as the Chief Executive Officer of the World Gold Council in October 2002. Many consider this as an important step in the ongoing development of the WGC as a commercially-driven gold marketing organization. Burton revitalized the organization, focusing on its mission as the marketing organization for the gold industry. He restructured the senior management team, reduced staff overheads, allotted fund for priority programs.
His leadership helped the organization build demand for gold jewellery, establish a network of distribution partners and create a range of products to attract investors to gold. In addition, the WGC has launched a number of gold-backed, exchange-traded funds, including Gold Bullion Securities on the London Stock Exchange in December 2003, and StreetTracks Gold Shares on the New York Stock Exchange in November 2004.
Burton came to this job after heading California Public Employees Retirement System (Calpers) for eight years from 1994 to September 2002. As largest public pension system in the USA, Calpers has $140 billion in assets and 1.2 million participants.
During Burton's time, the pension system pioneered a more activist approach to institutional investing. Prior to working for Calpers, he was Deputy State Controller for the State of California. In an exclusive email interview with Commodity Market, Burton says how important is India to WGC.
India is world's largest gold consumer but its per capita consumption of gold is less than 0.17 grams as majority of its people are poor. Yet you see growth prospects for gold. What is the basis for that?
India remains the largest international consumer of gold, but we believe there is still excellent opportunity for the market to grow. As the Indian urban middle class expands and wealth began to spread more evenly through rural areas, our market will grow. However, we recognize that the Indian consumer will have more and more choices to spend his rupees. We need to continue to communicate the benefits of gold to maintain and grow gold's share of the market.
What solution would you suggest against high volatility in gold market?
Price volatility is caused by a number of factors, which are not under the control of the World Gold Council. Gentle rise of prices are a good for gold jewellery demand, as people like to see the value of their purchase increasing. But high volatility can make people nervous about buying until they see the price stabilize. However, while gold may experience periods of volatility, it is less volatile an asset than many people believe, and certainly less volatile than any other commodity.
What roles does your organization play in ensuring that gold is a safe investment? It is not WGC's role to ensure prices or the safety of gold. However we do work to ensure fair and easy access to gold investment. Gold's safe haven characteristics are inherent in the metal itself, and not artificially supported. In uncertain times, there is typically a 'flight to quality' as investors seek to protect their capital by moving it into assets considered to be safer stores of value. Gold is among a handful of financial assets that do not rely on an issuer's promise to pay, offering refuge from default risk. It provides insurance against extreme movements that often occur in the value of traditional asset classes in unsettled times.
What should India do to have better liquidity in the market as well as make gold more attractive as an investment option?
One argument would be that India does have a high level of liquidity in the gold market, thanks to the large number of individuals trading gold in the open market. However, from an investment perspective, the development of the exchanges along with the development of more gold-backed investment vehicles such as Gold ETF products would boost the liquidity of the market and add confidence at the retail level. There is also much to be done to better inform the Indian investor on the benefits of investing in gold.
What will be your advice to investors in gold? And what will be India's role in creating the higher demand for gold? Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. This appeal remains compelling for modern investors too. Gold's investment qualitiesits portfolio diversification role, its role as a dollar hedge and an inflation hedge and as a risk management tool remain unchanged. We will work further to communicate these facts to the Indian investor. India has long had a "love affair" with this unique precious metal. As WGC continues to promote gold among Indians and as new market opportunities open up, we believe India will continue to lead global demand for gold.
What is your take on Gold Exchange Traded Funds? What is the growth potential of ETF in the next five years?
The World Gold Council was instrumental in launching Gold ETFs. The concept has revolutionized investor access to gold. Exchange traded gold provides retail and institutional investors with an efficient and cost-effective way to invest in gold. It aims to overcome the existing barriers to gold as a practical asset and investment product. For many investors, costs associated with buying and selling the securities are expected to be less than the costs associated with buying, selling, storing and insuring gold bullion in a traditional allocated gold bullion account.
Furthermore, exchange traded gold can be traded as easily as any other security listed on a stock exchange. The gold ETFs have proved remarkably successful since the first one was launched some five years. In 2006, holdings in these products accounted for 38 percent of world investment demand for gold, and as things stand (at the end of September 2007), there was over 790 tonnes of gold in ETFs worldwide, valued at nearly US$19
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